This is in spite of predictions that default rates would rise considerably.
In fact, the only time we have seen a meaningful rise in defaults is during the 2008 financial crisis and the Eurozone crisis. Even during Covid-19, default rates only rose to around 2.5 per cent in Europe.
One of the other reasons the loan market has shown very limited volatility is due to the senior secured nature of the asset class, meaning that even in cases of defaults, recovery rates are typically high.
Given this, even if we were to find ourselves in another major global financial crisis, investors in other asset classes, such as equities, would likely have to absorb higher losses than those with exposure to senior secured loans.
So, the takeaway for advisers here is we are now in a world where inflationary pressures will come and go on a far more regular basis and some, such as inverted population pyramids, are here to stay.
This makes floating-rate assets an absolutely critical part of portfolios.
Pieter Staelens is managing director at CVC Credit and portfolio manager of CVC Income & Growth
